Coinbase Is Investigating Possible Bitcoin Cash Insider Trading by Employees

December 20, 2017, 2:39 PM UTC

The CEO of Coinbase, the biggest U.S. cryptocurrency exchange, said the company is conducting an investigation into unusual trading activity that preceded its distribution of Bitcoin Cash on Tuesday evening.

The decision came after Coinbase was forced to halt trading of the newly listed Bitcoin Cash—a copycat version of bitcoin created this summer—after its price briefly soared to more than $8,000, a value more than twice what was listed on other exchanges on Tuesday.

In a strongly-worded blog post, CEO Brian Armstrong also warned Coinbase would take legal action if the investigation revealed violations of trading on insider information:

Given the price increase in the hours leading up the announcement, we will be conducting an investigation into this matter. If we find evidence of any employee or contractor violating our policies — directly or indirectly — I will not hesitate to terminate the employee immediately and take appropriate legal action.

In an earlier blog post, an executive from Coinbase’s exchange platform GDAX explained it had cancelled some Bitcoin Cash orders and cleared its order books to “ensure a fair and orderly market.”

Even as Coinbase struggled to smooth over the chaotic introduction of Bitcoin Cash, digital currency watchers on social media lashed out, accusing the company of facilitating insider trading:

Others on Twitter, however, came to Armstrong’s defense and said the CEO was clearly not complicit in any insider trading activities.

As of Wednesday morning ET, the ability to buy or sell Bitcoin Cash remained disabled on Coinbase, though customers could transfer it to other digital currency wallets.

This week’s Bitcoin Cash debacle is just the latest example of the volatility and mistrust that continues to plague digital currency markets even as millions of ordinary people are rushing to invest.

Meanwhile, the arrival of Bitcoin Cash on Coinbase amounts to a windfall for the exchange’s customers who held bitcoin on or before August 1—but could also amount to a major tax headache at at a time when the IRS has issued scant guidance on how to report digital currency income.

Bitcoin Cash was trading around $3,800 as of Wednesday morning while the original bitcoin stood near $17,4000, according to Coinmarketcap.

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